Cash call sends finance firm Just Group's shares tumbling

(Reuters) - Shares in Britain’s Just Group plunged 19 percent on Thursday after the financial services specialist for retirees announced a share placement at a heavy discount, and a $398 million (300.1 million pounds) debt issue, to meet tougher capital rules.

Just’s share price has been hit hard by concerns about the impact of planned changes to capital requirements, due to come into effect at the end of this year, which forced it to delay a annual dividend payment last year and raised worries it would have to raise capital.

On Thursday the company, formed by the merger of Just Retirement and Partnership Assurance in 2016, announced that it plans to sell about 10 percent of its existing shares to institutional investors in a placement at just 10 pence apiece and would separately launch a debt issue that would raise at least 300 million pounds.

Its shares were trading at 84.9 pence by 1004 GMT, down 12.9 percent and taking them to the bottom of London’s midcap index. By Wednesday’s close the shares had already lost 22 percent since late July when the company warned changes to rules could hit its capital position.

“We expected that the company would need to raise additional debt but the equity issuance comes as a surprise ... today’s announcements amount to the company resetting a number of factors in order to prepare for the future,” Shore Capital analyst Paul De’Ath said.

He said Just’s capital breakeven point has been pushed back by a number of years to 2022.

Just also reported a 31 percent jump in 2018 underlying operating earnings on Thursday to 315 million pounds, as companies offloaded their pension liabilities.

To comply with the new regulations, introduced by Britain’s Prudential Regulation Authority, Just will need to set aside more capital to cover risks in the mortgage market.

The new rules aim to protect insurers against risks from lifetime mortgages, which enable homeowners to borrow against the value of their property and only pay back the loan when they die.

The company said it would not pay a full-year dividend for the year ended Dec. 31, 2018 but would restart its dividend in the financial year 2019.

“We got strong advice from our shareholders, if you’re asking us for money at the end of March, don’t give some of it back a few weeks later,” Chief Executive Officer Rodney Cook told Reuters.

“Shareholders ... said the really important thing for us ... is that you continue to grow the business, get to that capital self sufficiency point,” he added.

Just said its solvency ratio would rise to 160 percent on a pro forma basis for the end of 2018, from a currently stated 136 percent. Solvency II dictates the amount of capital an EU insurer must hold to reduce the risk of insolvency.

(The story corrects sixth paragraph to say capital breakeven point has been pushed to 2022, not would have to be pushed beyond 2022.)